At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards D.R. Horton, Inc. (NYSE:DHI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
D.R. Horton, Inc. (NYSE:DHI) was in 66 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 65. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DHI shareholders have witnessed an increase in hedge fund sentiment lately. There were 65 hedge funds in our database with DHI holdings at the end of March. Our calculations also showed that DHI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ricky Sandler of Eminence Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to go over the recent hedge fund action encompassing D.R. Horton, Inc. (NYSE:DHI).
What does smart money think about D.R. Horton, Inc. (NYSE:DHI)?
At the end of June, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in DHI over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Egerton Capital Limited, managed by John Armitage, holds the biggest position in D.R. Horton, Inc. (NYSE:DHI). Egerton Capital Limited has a $517.7 million position in the stock, comprising 3.8% of its 13F portfolio. The second most bullish fund manager is Greenhaven Associates, led by Edgar Wachenheim, holding a $441.7 million position; the fund has 9.8% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass George Soros's Soros Fund Management, Greg Poole's Echo Street Capital Management and Ricky Sandler's Eminence Capital. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to D.R. Horton, Inc. (NYSE:DHI), around 9.78% of its 13F portfolio. Mountaineer Partners Management is also relatively very bullish on the stock, dishing out 8.09 percent of its 13F equity portfolio to DHI.
As one would reasonably expect, key hedge funds have jumped into D.R. Horton, Inc. (NYSE:DHI) headfirst. Suvretta Capital Management, managed by Aaron Cowen, established the most outsized position in D.R. Horton, Inc. (NYSE:DHI). Suvretta Capital Management had $65 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $57.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Pohly's Samlyn Capital, Josh Donfeld and David Rogers's Castle Hook Partners, and Anand Parekh's Alyeska Investment Group.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as D.R. Horton, Inc. (NYSE:DHI) but similarly valued. These stocks are Southwest Airlines Co. (NYSE:LUV), Corteva, Inc. (NYSE:CTVA), Old Dominion Freight Line, Inc. (NASDAQ:ODFL), ZoomInfo Technologies Inc. (NASDAQ:ZI), PPL Corporation (NYSE:PPL), Edison International (NYSE:EIX), and Wheaton Precious Metals Corp. (NYSE:WPM). This group of stocks' market values resemble DHI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LUV,56,873793,11 CTVA,39,775291,3 ODFL,35,480042,2 ZI,24,157040,24 PPL,25,159807,-3 EIX,37,1670961,8 WPM,21,767509,-4 Average,33.9,697778,5.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $2088 million in DHI's case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Wheaton Precious Metals Corp. (NYSE:WPM) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks D.R. Horton, Inc. (NYSE:DHI) is more popular among hedge funds. Our overall hedge fund sentiment score for DHI is 86. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on DHI as the stock returned 37.7% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.